The San Diego City Council on Tuesday voted 8-1 to pass an ordinance prohibiting artificial intelligence-driven software from being used to set rental housing prices.
Councilman Sean Elo-Rivera brought forward the proposal, which would ban software involved in numerous complaints as a "modern-day price-fixing service that directly and indirectly inflates rent prices, harming millions of Americans," a statement from the councilman's office said. He is supported by City Attorney Heather Ferbert.
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WATCH HEREThe ordinance needs a second reading, then implementation may begin this summer. However, many expect there to be lengthy legal battles over this issue.
If passed, it would ban the sale, license and use of these automated rent-setting software that advises or recommends rental rates or occupancy levels.
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SIGN UP In 2022, nonprofit investigative journalism organization ProPublica explained how a Texas company called RealPage uses its YieldStar software: "To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge," the article reads.
ProPublica found that RealPage actively discourages bargaining with renters and recommends landlords accept a lower occupancy rate rather than take rent less than that which the AI finds "optimal."
In 2024, the median income for a family of four in San Diego County was $119,500, according to the San Diego Housing Commission. The salary required for a mortgage is even higher, at $275,000. Meanwhile, the current average rent in San Diego for all bedroom and property types is $3,000 a month.
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Elo-Rivera alleges AI price-fixing software, along with other factors such as limited housing supply and private investment, is artificially inflating the cost of housing, hurting working San Diegans.
In December 2024, the White House Council of Economic Advisers released a report detailing the impacts of algorithmic price-fixing software. The Department of Justice and California Attorney General Rob Bonta joined other Attorneys General to sue RealPage last year.
RealPage has dismissed the claims, saying landlords do not coordinate to set rents higher.
The analysis "indicates that if price coordination was eliminated, there would be an economically meaningful decrease in price mark-ups for rental units using pricing algorithms." Additionally, it found that use of the software and others like it account for $99 per month in over market valuation.
Elo-Rivera's proposed ordinance does not ban the use of software that publishes reports regarding rental rates or occupancy levels from existing information available to the general public or software used to establish rental rates or income limits in accordance with local, state, or federal affordable housing program guidelines.
The San Francisco Board of Supervisors adopted a similar ban in September 2024. The Philadelphia City Council adopted a similar ordinance in October 2024.
